-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bzb+D3zXkEO3ln3Ygjb1t0F2jEMbyMGgZ/Xo+7fly2/t6YxT/GvSai0L9Abq2uIv C9DUZCk3TmXHNeXq11OUrQ== 0000799698-96-000005.txt : 19960328 0000799698-96-000005.hdr.sgml : 19960328 ACCESSION NUMBER: 0000799698-96-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYTRX CORP CENTRAL INDEX KEY: 0000799698 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 581642740 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15327 FILM NUMBER: 96539343 BUSINESS ADDRESS: STREET 1: 154 TECHNOLOGY PKWY STREET 2: TECHNOLOGY PARK/ATLANTA CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 4043689500 MAIL ADDRESS: STREET 1: 154 TECHNOLOGY PARKWAY CITY: NORCROSS STATE: GA ZIP: 30092 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]. For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File No. 0-15327 CYTRX CORPORATION (Exact name of Registrant as specified in its charter) Delaware 58-1642740 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 154 Technology Parkway Norcross, Georgia 30092 30092 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 368-9500 __________________________ Securities registered pursuant to Section l2(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] On March 19, 1996, the aggregate market value of the Registrant's common stock held by non-affiliates was approximately $27,453,000. On March 19, 1996, there were 7,860,803 shares of the Registrant's common stock outstanding, exclusive of treasury shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the CytRx Corporation 1995 Annual Report to Stockholders are incorporated by reference into Parts I, II, III and IV. Portions of the CytRx Corporation Proxy Statement for the 1996 Annual Meeting of Stockholders are incorporated by reference into Part III. PART I Item 1. Business Overview CytRx Corporation was founded in 1985 and is engaged in the development and commercialization of pharmaceutical related products and services including human therapeutics focused on high-value critical-care therapies. In addition to its development work in human therapeutics, CytRx has also created three wholly-owned subsidiaries to broaden the development of its technologies without losing focus on its core critical-care strategy. Vaxcel, Inc. is developing its Optivax delivery system to enhance the effectiveness of vaccines. Vetlife, Inc. is developing products to enhance food animal growth. Proceutics, Inc. provides preclinical development services to the pharmaceutical industry. Reference herein to "the Company" includes CytRx and its wholly-owned subsidiaries. The Company presently has no product that is approved by a regulatory agency for commercial use in human or veterinary applications. Product Development CytRx's human therapeutics product development efforts are focused on critical- care products providing target opportunities for high-value breakthrough products to address unmet medical needs. Projects include RheothRx which has the potential to alleviate the pain and suffering associated with sickle cell crisis. In 1995, results from a 2,900 patient RheothRx trial indicated unacceptable side effects at doses that provided therapeutic benefit to heart attack victims. As a result, CytRx's licensee, Glaxo Wellcome PLC, returned rights to the Company. CytRx believes that RheothRx still offers opportunity in treating sickle cell disease. RheothRx has shown promise in reducing crisis duration, pain and length of hospitalization in patients suffering acute crisis. Scientists are currently exploring the feasibility of continuing development in this area. In June 1989, the FDA informed CytRx of its decision to grant RheothRx "Orphan Drug" designation for the treatment of sickle cell crisis. In March 1990, RheothRx also received Orphan Drug designation for the treatment of severe burns. The Orphan Drug Act of 1983, as amended, provides incentive to drug manufacturers to develop drugs for the treatment of rare diseases (e.g. diseases that affect less than 200,000 individuals in the United States, or diseases that affect more than 200,000 individuals in the United States where the sponsor does not reasonably anticipate that its product will become profitable). As a result of the designation of RheothRx as an Orphan Drug, if the Company is the first manufacturer to obtain FDA approval to market RheothRx for treatment of sickle cell crisis or severe burns, the Company will obtain a seven-year period of marketing exclusivity beginning from the date of its approval. During this period, the FDA cannot approve the same drug for the same use from another sponsor. There can be no assurance that the Company will receive approval to market RheothRx for the treatment of sickle cell crisis or severe burns. CytRx is also developing Protox as a treatment for tuberculosis as well as for use in combination with certain antibiotic and anti-viral compounds to enhance their uptake and resulting effectiveness. VAXCEL'S Optivax System represents a novel approach to improving the effectiveness of vaccines including the potential to enable single-dose formulations for vaccines that currently require multiple injections. Phase I human clinical trials were initiated in January 1996 to study the Optivax System in combination with a cancer vaccine. Vaxcel is focusing on building corporate partnerships with vaccine producers. The company recently entered into option agreements with Connaught Laboratories and Medeva PLC to combine the Optivax System with high priority vaccine development projects at these firms. The Optivax System is being made available to other vaccine companies on an antigen by antigen basis. VETLIFE is engaged in the development, licensing and marketing of technologies to improve the value of food animal products to the cattle, poultry, swine and dairy industries. In January 1996, Vetlife entered into an agreement to market and distribute a line of FDA-approved cattle growth products in North America. The Vetlife Cattle Marketing Group projects sales, profits and positive cash flow beginning in 1997. Vetlife products under development are targeted at improving product benefits or reducing cost without compromising safety or quality. Projects include a non-antibiotic growth promoter for poultry and swine, adjuvants to enhance animal vaccines and antibiotic potentiators to overcome antibiotic resistance or reduce required doses. Regulations imposed by the United States government and other countries require a demonstration of the safety and efficacy of new therapeutic agents through studies in animals and controlled clinical testing in human beings prior to marketing. See "Government Regulation." There can be no assurance that any particular development program of the Company will lead to the development of a marketable product or that any such product will be profitable. Consolidated expenditures for research and development activities were $7.1 million, $6.8 million and $4.7 million during the years ended December 31, 1995, 1994 and 1993, respectively. Other Products and Services PROCEUTICS was formed in 1995 and commenced formal operations in January 1996. Proceutics is targeting a growing need within biopharmaceutical companies by providing high-value, high-quality pharmaceutical development services to supplement pre-IND activities. Proceutics services include analytical methods development and testing, formulations, clinical supply manufacturing, pharmacokinetic studies, protocol preparation and other services to the preclinical development of new drug candidates. CytRx also manufactures, markets and distributes TiterMax, an adjuvant used to produce cell mediated and humoral responses in research animals. The keys to the potency of TiterMax lie in its immunostimulatory activity and the formation of stable water-in-oil emulsions. TiterMax aids in the antigen's effective presentation to the immune system without the toxic effects of other research adjuvants. Manufacturing The Company has converted a portion of its Norcross, Georgia headquarters into a pilot manufacturing facility in order to produce the bulk clinical supply ingredients for its product development programs. See "Product Development." Production of the final dosage form of materials for use in clinical trials will be performed by third party manufacturers. The Company's pilot facility is intended for manufacture of investigational supplies of certain of the Company's products under development and is generally not large enough to produce quantities of product adequate for commercial purposes. The process used in the pilot facility also may require modification to achieve commercial scale. If the Company modifies its manufacturing process or changes the source or location of product supply, regulatory authorities will require the Company to demonstrate that the material produced from the modified or new process or facility is equivalent to the material used in the Company's clinical trials. Further, any manufacturing facility and the quality control and manufacturing procedures used by the Company for the commercial supply of a product must comply with applicable OSHA, EPA, and FDA standards, including Good Manufacturing Practice regulations. Patents and Proprietary Technology CytRx considers the protection of its discoveries and inventions important to its business. The Company seeks patent protection for its technology when deemed appropriate and has filed patent applications in the United States and selected foreign countries covering several general product areas, including technology licensed from Emory University (see below) and others. There can be no assurance that patent applications which have been or will in the future be filed by the Company will result in the issuance of any patents, or, if issued, that such patents will provide sufficient protection or be of commercial benefit to CytRx and its licensees. Pursuant to an agreement with Emory University ("Emory") whereby certain basic research was performed by the Company utilizing the research facilities and support staff at Emory, Emory will be assigned the rights to all patents acquired as a result of discovery activities conducted at Emory on behalf of CytRx. Emory has granted CytRx exclusive worldwide licenses to these patents. Emory is entitled to receive royalty payments on sales made by CytRx of products covered by the licensed patents, and on payments received by CytRx as a result of sales of such products made by a third party. In the event that patents are not issued with respect to a particular class of products, the Company's license with respect to that class of products will terminate. Competition Many companies, including large pharmaceutical, chemical and biotechnology firms with financial resources, research and development staffs, and facilities that are substantially greater than those of the Company, are engaged in the research and development of pharmaceutical products that could compete with the products under development by the Company. The industry is characterized by rapid technological advances and competitors may develop their products more rapidly and/or such products may be more effective than those under development by the Company or its licensees and corporate partners. The Company competes in this research and development environment by attempting to develop its products and technologies in an innovative and timely fashion that would provide the Company with an advantage in the licensing and/or marketing of its products and technologies. Government Regulation The marketing of pharmaceutical products requires the approval of the FDA and comparable regulatory authorities in foreign countries. The FDA has established guidelines and safety standards which apply to the pre-clinical evaluation, clinical testing, manufacture and marketing of pharmaceutical products. The process of obtaining FDA approval for a new therapeutic product (drug) generally takes several years and involves the expenditure of substantial resources. The steps required before such a product can be produced and marketed for human use in the United States include preclinical studies in animal models, the filing of an Investigational New Drug ("IND") application, human clinical trials and the submission and approval of a New Drug Application ("NDA"). The NDA involves considerable data collection, verification and analysis, as well as the preparation of summaries of the manufacturing and testing processes, preclinical studies, and clinical trials. The FDA must approve the NDA before the drug may be marketed. There can be no assurance that the Company will be able to obtain the required FDA approvals for any of its products. The manufacturing facilities and process for the Company's products, whether manufactured directly by the Company or by a third party, will be subject to rigorous regulation, including the need to comply with Federal Good Manufacturing Practice regulations. The Company is also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Nuclear Energy and Radiation Control Act, the Toxic Substance Control Act and the Resource Conservation and Recovery Act. Environmental Protection The Company's pharmaceutical development center is exempt from the CFR (40-Part 370) hazardous chemical reporting. The facility is classified as a small quantity generator of hazardous waste, which includes radio-isotopes, biological and chemical hazards. Such waste is removed by a qualified waste hauler. The Company has established a Corporate Safety Committee to oversee its Health and Safety Policy which defines procedures for identification of risks posed to employees from hazardous material and training of employees in the proper handling and disposal of such materials. During 1993 and 1994 the Company incurred approximately $2.6 million to expand and renovate its pharmaceutical development facility. These expenditures included amounts related to the installation of a single pass air handling system with HEPA filters for the exhaust air from Biosafety Level III and radiological hoods. Also included were the installation of backflow prevention devices and acid dilution basins to neutralize waste water leaving the facility. During 1995 compliance with federal, state and local regulations pertaining to environmental standards did not have a material effect upon the capital expenditures or earnings of the Company. Number of Employees As of December 31, 1995, the Company had 59 full-time and 1 part-time employees. Item 2. Properties The Company's executive offices and operational facilities, consisting of an aggregate of approximately 30,700 square feet, are located on property owned by the Company at 150 and 154 Technology Parkway, Norcross, Georgia. These facilities include approximately 20,000 square feet of laboratories, pilot manufacturing, and associated space. The above-mentioned facilities are in satisfactory condition and suitable for the particular purposes for which they were acquired or constructed and are adequate for present operations. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders On December 22, 1995, the Registrant mailed a Proxy Statement to its stockholders of record as of December 7, 1995 pertaining to a Special Meeting of Stockholders held on February 5, 1996. The only item of business acted upon at the Special Meeting was a proposal to amend the Registrant's Certificate of Incorporation to effect a recapitalization through a one-for-four reverse stock split. At the meeting approximately 26.6 million votes were cast (either by person or by proxy) in favor of the proposal, 1.6 million against the proposal, with 128,000 abstentions. There were 3.1 million nonvoted shares. Accordingly, the reverse stock split was effected February 6, 1996. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock is traded on the The Nasdaq Stock Market under the symbol CYTR. The following table sets forth the high and low closing prices for the Common Stock for the periods indicated as reported by Nasdaq. Such prices represent prices between dealers without adjustment for retail mark-ups, mark- downs, or commissions and may not necessarily represent actual transactions. Such prices have been adjusted to reflect the one-for-four reverse stock split effected February 6, 1996. High Low COMMON STOCK: 1996 January 1 to March 19 6 3 11/16 1995 Fourth quarter 12 5/8 3 1/2 Third quarter 13 1/2 6 1/2 Second quarter 10 3/4 5 3/4 First quarter 10 3/8 5 1/4 1994 Fourth quarter 10 3/4 5 Third quarter 18 1/2 8 1/2 Second quarter 26 1/2 16 First quarter 33 22 1/2 On March 19, 1996, the closing price of the Common Stock as reported on The Nasdaq Stock Market, was $4.00. As of December 31, 1995 there were approximately 1,500 holders of record of the Company's Common Stock. The number of record holders does not reflect the number of beneficial owners of the Company's Common Stock for whom shares are held by Cede & Co., certain brokerage firms and other institutions. The Company has not paid any dividends since its inception and does not contemplate payment of dividends in the foreseeable future. Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data The information required by Items 6-8 is incorporated by reference to the applicable portions from the Company's 1995 Annual Report to Stockholders. See Part IV, Item 14 for an index of the statements, notes and schedules. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by Items 10-12 is incorporated by reference from the Company's definitive proxy statement for the Company's 1996 Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the end of the Company's 1995 fiscal year. Item 13. Certain Relationships and Related Transactions None. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of this 10-K: 1. The consolidated financial statements listed below are incorporated by reference from the Company's 1995 Annual Report to Stockholders: Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Auditors dated February 19, 1996 2. Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994 and 1993 Page 9 All other schedules are omitted because they are either not applicable or the related information is provided in the notes to the financial statements. 3. Exhibits required by Item 601 of Regulation S-K: See Exhibit Index on page 10 of this Form 10-K. (b) Reports on Form 8-K: On November 7, 1995 a Current Report on Form 8-K was filed pertaining to the termination of a license agreement between CytRx Corporation and Glaxo Wellcome PLC (see "RheothRx License Agreement"). On October 30, 1995 a Current Report on Form 8-K was filed pertaining to the adoption of a stock buy-back program by the Company. CYTRX CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1995, 1994 and 1993
Additions ------------------------ Balance at Charged to Charged to Balance at Beginning Costs and Other End Description of Period Expenses Accounts Deductions of Period - ------------------------------------- --------- --------- ---------- ---------- ---------- Reserve Deducted in the Balance Sheet from the Asset to Which it Applies: Allowance for Deferred Tax Assets Year ended December 31, 1995 $9,200,000 $4,400,000 $0 $0 $13,600,000 Year ended December 31, 1994 $6,700,000 $2,500,000 $0 $0 $9,200,000 Year ended December 31, 1993 $4,400,000 $2,300,000 $0 $0 $6,700,000 Marketable Securities Valuation Reserve Year ended December 31, 1995 $2,475,277 $0 $0 $2,475,277 $0 Year ended December 31, 1994 $131,329 $0 $2,475,277 $131,329 $2,475,277 Year ended December 31, 1993 $127,015 $4,314 $0 $0 $131,329
CytRx Corporation Form 10-K Exhibit Index Exhibit Number Page 3.1 Articles of Incorporation, as Amended and Restated 3.2 By-Laws (a) 10.1 Agreement with Emory University, as amended (a) 10.2 Agreement with BASF Corporation, as amended (a) 10.3 Exclusive License Agreement with Burroughs Wellcome Co. (e) 10.4 Letter Agreement between the Registrant and Burroughs Wellcome Co. extending the Exclusive License Agreement dated April 19, 1990 to Japan (c) Executive Compensation Plans and Arrangements 10.3 Employment Agreement dated March 24, 1989, with Jack J. Luchese, as amended (c) 10.4 1995 Employment Agreement, dated January 1, 1995, with Jack J. Luchese (d) 10.5 1986 Stock Option Plan, as amended and restated as of May 30,1991 (b) 10.6 1994 Stock Option Plan (d) 10.7 1995 Stock Option Plan (f) 11.1 Computation of Income (Loss) Per Share 13.1 Selected Portions from the CytRx Corporation 1995 Annual Report to Stockholders 21.1 Subsidiaries of Registrant 23.1 Consent of Ernst & Young LLP 27.1 Financial Data Schedule ___________________ (a) Incorporated by reference to the Registrant's Registration Statement on Form S-l (File No. 33-8390) filed on November 5, 1986. (b) Incorporated by reference to the Registrant's Registration Statement on Form S-3 (File No. 33-38206) filed on June 25, 1991. (c) Incorporated by reference to the Registrant's Current Report on Form 8-K filed as of March 20, 1989. (d) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-93816) filed on June 22, 1995. (e) Incorporated by reference to the Registrant's Current Report on Form 8-K filed as of April 25, 1991. (f) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-93818) filed on June 22, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CYTRX CORPORATION By: /s/ Jack J. Luchese Jack J. Luchese, President Date: March 27, 1996 and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Jack Bowman Director March 27, 1996 Jack Bowman /s/ Raymond C. Carnahan, Jr. Director March 27, 1996 Raymond C. Carnahan, Jr. /s/ Jack J. Luchese Chairman of the March 27, 1996 Jack J. Luchese Board of Directors, President, Chief Executive Officer, (Principal Executive Officer) /s/ Herbert H. McDade, Jr. Director March 27, 1996 Herbert H. McDade, Jr. Director Selvi Vescovi /s/ James M. Yahres Vice President of Finance March 27, 1996 James M. Yahres Secretary (Principal Financial Officer) /s/ Mark W. Reynolds Corporate Controller March 27, 1996 Mark W. Reynolds (Principal Accounting Officer)
EX-3 2 Exhibit 3.1 CERTIFICATE OF INCORPORATION OF CYTRX CORPORATION As Amended and Restated February 21, 1996 The undersigned, a natural person, for the purpose of organizing a corporation for conducting the business and promoting the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified and referred to as the "General Corporation Law of the State of Delaware"), hereby certifies that: FIRST: The name of the corporation (hereinafter called the "Corporation") is CytRx Corporation SECOND: The address, including street, number, city, and county, of the registered office of the corporation in the State of Delaware is 229 South State Street, City of Dover, County of Kent; and the name of the registered agent of the corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc. THIRD: The nature of the business and of the purposes to be conducted and promoted by the corporation are as follows: To manufacture, prepare, compound, refine, distill, produce, invent, discover, devise, develop, conduct scientific researches in respect of and exploit the findings therefrom, acquire, assign, and transfer formulae, concentrates, compounds, and processes for, apply, buy, sell, import and export, and generally deal in and with at wholesale and retail and as principal, agent, broker, distributor, sales, financial, and special representative, licensor, licensee, and in any other lawful capacity, pharmaceuticals, drugs and nutritional aspects for animals and humans. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of stock that the corporation shall have the authority to issue is Eighteen Million Seven Hundred Fifty-One Thousand (18,751,000), of which Eighteen Million Seven Hundred Fifty Thousand (18,750,000) shall be common stock, par value $.001 per share (the "Common Stock") and One Thousand (1,000) shall be preferred stock, par value $.01 per share (the "Preferred Stock"). The Board of Directors is hereby authorized, subject to any limitations prescribed by law, to provide for the issuance of the Shares of Preferred Stock in series, and by filing a Certificate pursuant to the applicable law of the State of Delaware (hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, preferences, and rights of the shares of each such series, and any qualifications, limitations or restrictions thereof. FIFTH: The name and the mailing address of the incorporator are as follows: Name Mailing Address R. G. Dickerson 229 South State Street, Dover, Delaware SIXTH: The corporation is to have perpetual existence. SEVENTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such a manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. EIGHTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided: 1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the By-Laws. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot. 2. After the original or other By-Laws of the corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of Section 109 of the General Corporation Law of the State of Delaware, and, after the corporation has received any payment for any of its stock, the power to adopt, amend, or repeal the By-Laws of the corporation may be exercised by the Board of Directors of the corporation; provided, however, that any provision for the classification of directors of the corporation for staggered terms pursuant to the provisions of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial By-Law or in a By- Law adopted by the stockholders entitled to vote of the corporation unless provisions for such classification shall be set forth in this certificate of incorporation. 3. Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the certificate of incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (b)(2) of section 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class. NINTH: The corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. TENTH: From time to time any of the provisions of this certificate of incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article TENTH. ELEVENTH: A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. EX-11 3 Exhibit 11.1 CytRx Corporation Computation of Loss Per Share For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 ----------- ---------- ---------- COMPUTATION OF NET LOSS PER SHARE - PRIMARY Net loss $(10,652,582) $(7,700,186) $(3,228,600) ========== ========= ========= Average number of common shares outstanding 7,905,364 7,893,962 7,878,415 Common shares issuable assuming exercise of stock options and warrants 0 0 0 ---------- --------- --------- Total shares 7,905,364 7,893,962 7,878,415 ========== ========= ========= Net loss per share $(1.35) $(0.98) $(0.41) ========== ========= ========= COMPUTATION OF NET LOSS PER SHARE - FULLY DILUTED Net loss $(10,652,582) $(7,700,186) $(3,228,600) ========== ========= ========= Average number of common shares outstanding 7,905,364 7,893,962 7,878,415 Common shares issuable assuming exercise of stock options and warrants 0 0 0 ---------- --------- --------- Total shares 7,905,364 7,893,962 7,878,415 ========== ========= ========= Net loss per share $(1.35) $(0.98) $(0.41) ========== ========= ========= Stock options and warrants outstanding are excluded from the computation of net loss per share since their effect would be anti-dilutive.
EX-13 4 EXHIBIT 13.1 CYTRX CORPORATION FORM 10-K SELECTED PORTIONS FROM THE CYTRX CORPORATION 1995 ANNUAL REPORT TO STOCKHOLDERS Five Year Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Balance Sheets as of December 31, 1995 and 1994 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Auditors dated February 19, 1996 FIVE YEAR SELECTED FINANCIAL DATA CytRx Corporation and Subsidiaries
1995 1994 1993 1992 1991 Statement of Operations Data: Revenues: Net Sales $ 512,528 $ 500,814 $ 506,317 $ 539,700 $ 282,671 License Fees 115,000 - 1,500,000 2,000,000 4,500,000 Investment and Other Income 1,915,802 1,987,204 2,538,221 2,444,408 308,779 Total Revenues 2,543,330 2,488,018 4,544,538 4,984,108 5,091,450 Net Income (Loss) (10,652,582) (7,700,186) (3,228,600) (67,656) 2,519,321 Net Income (Loss) per Common Share (1.35) (0.98) (0.41) (0.01) 0.47 Balance Sheet Data: Total Assets $30,959,983 $38,660,567 $49,760,261 $52,802,211 $23,784,642 Total Stockholders' Equity 29,770,485 38,026,347 47,685,269 51,248,001 22,692,833
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition and Liquidity At December 31, 1995 the Company had cash and short-term investments of $25.2 million and net assets of $29.8 million, compared to $30.8 million and $38.0 million, respectively, at December 31, 1994. Working capital totaled $24.4 million at December 31, 1995, compared to $30.7 million at December 31, 1994. In October 1995 Glaxo Wellcome PLC ("GW") informed the Company of its decision to cease development of the Company's RheothRx copolymer and its intention to terminate its license. Since May 1994 RheothRx was under evaluation in a multi- national Phase II/III study in patients with acute myocardial infarction. The trial was planned to eventually enroll more than 9,000 patients. In July, GW completed patient enrollment in Stage 1 of the trial, involving 2,948 patients. An analysis of Stage 1 by GW indicated that RheothRx showed benefit only in certain clinical evaluations which were limited to high dose levels associated with unacceptable toxicity. Lower dosages of the drug were not associated with clinical benefit. Pursuant to CytRx's 1990 license agreement with GW (then Burroughs Wellcome Co.), the Company received a cumulative total of $9 million under the agreement during 1990 to 1993. Subsequent to the termination of its license, GW has no further financial obligations to CytRx. The termination of the RheothRx license by GW had no impact on the accompanying consolidated financial statements. During 1995 the Company formed a new subsidiary, Proceutics, Inc., to provide preclinical development services to the pharmaceutical industry. CytRx contributed existing property and staff resources to the venture which commenced formal operations in January 1996. Management believes that while Proceutics will continue to provide services to its affiliates, revenue derived from third party sources will contribute to CytRx's consolidated liquidity and capital resources commencing in 1996. In January 1996 Vetlife signed an agreement with Ivy Laboratories, Inc. to market and distribute Ivy's line of FDA approved cattle growth products and devices in North America. No revenues related to this agreement are anticipated during 1996; marketing activities are expected to begin by January 1997. Management expects that revenue generated from this arrangement will support Vetlife's other development programs. Although GW's termination of the RheothRx license agreement has negatively impacted CytRx's long-term cash flow potential, management believes that cash and short-term investments, combined with investment income, revenues generated by Proceutics and Vetlife, and sales of TiterMax, will be sufficient to satisfy the Company's working capital needs for the next several years. The Company will consider additional sources of funding as appropriate and available. Results of Operations The following table presents the breakdown of consolidated results of operations by operating unit for 1995, 1994 and 1993. Although the subsequent discussion addresses the consolidated results of operations for CytRx and its subsidiaries, management believes this presentation of net results by operating unit is important to an understanding of the consolidated financial statements taken as a whole. No results are shown for Proceutics, Inc. as this subsidiary did not commence formal operations until 1996. Year ended December 31, (in thousands) 1995 1994 1993 ------- ------- ------- CytRx $ (8,441) $(6,656) $(1,655) Vaxcel (1,386) (600) (1,443) Vetlife (826) (444) (131) -------- ------- ------- Net Loss $(10,653) $(7,700) $(3,229) Net sales of TiterMax were $513,000 in 1995, as compared to $501,000 in 1994 and $506,000 in 1993. During 1995 selling and marketing expenses were $229,000, as compared to $182,000 in 1994 and $445,000 in 1993. In December 1994 the rights to Titermax were transferred from Vaxcel to CytRx concurrent with the payment of $500,000 from CytRx to Vaxcel. This payment is reflected in the net results by operating unit above, but is eliminated in the consolidated statement of operations. The fluctuations in selling and marketing expenses are due to variances in promotional expenditures as well as personnel resources devoted to the Titermax marketing effort. License fee revenues of $1.5 million recorded in 1993 were composed solely of $500,000 quarterly payments from GW, which were discontinued during the third quarter of 1993 pursuant to the Company's agreement with GW. As discussed earlier this contract was terminated by Glaxo Wellcome during 1995 (see Note 8 to Consolidated Financial Statements). Investment income was $1.8 million in 1995, as compared to $1.9 million in 1994 and $2.5 million in 1993. In 1995 CytRx chose to convert the majority of its short-term investments into cash equivalents. At December 31, 1994 the Company had $2.5 million in unrealized losses as a result of 1994's dramatic increase in interest rates. By taking advantage of strength in the bond market during the second quarter of 1995, CytRx reduced its unrealized losses by $1.4 million, recording non-cash charges of $1.1 million during 1995. These charges are shown as a separate line item in the Consolidated Statements of Operations. The Company believes that during the period in which these losses were incurred and then recognized (February 1994 to June 1995), total investment income, net of realized losses, exceeded the amount of potential investment income which would have been realized had the Company invested in shorter-term securities. During the first quarter of 1994 the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (see Note 2 to Consolidated Financial Statements). Consolidated research and development expenditures during 1995 were $7.1 million versus $6.8 million in 1994 and $4.7 million in 1993. The increase from 1993 to 1994 is primarily attributable to additional scientific staff and resulting laboratory operational expenditures in support of expanded preclinical development efforts on the Company's human therapeutic compounds. The increase from 1994 to 1995 is due to continued clinical development activities for CRL- 1336 in early 1995 as well was additional staff and development activities for Vaxcel and Vetlife. Vaxcel and Vetlife together represented approximately 20%, 10% and 18% of consolidated research and development expenses during 1995, 1994 and 1993, respectively. Consolidated general, administrative and business development expenses during 1995 were $3.3 million as compared to $3.3 million in 1994 and $2.6 million in 1993. The increase from 1993 to 1994 is due to an overall increase in staffing levels and other administrative costs in support of expanded research and development facilities and activities. There were no significant changes in general and administrative costs from 1994 to 1995. Vaxcel and Vetlife together represented approximately 31%, 28% and 25% of consolidated general and administrative expenses during 1995, 1994 and 1993, respectively. Management believes that inflation had no material impact on the Company's operations during the three year period ending December 31, 1995. Impact of Recently Issued Accounting Standards In March 1995 the FASB issued Statement of Financial Accounting Standards No. 121 which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill. The Company will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. In October 1995 the FASB issued Statement of Financial Accounting Standards No. 123 which provides an alternative to APB Opinion No. 25 in accounting for stock- based compensation issued to employees. For companies that continue to account for stock-based compensation arrangements under APB Opinion No. 25, Statement No. 123 requires disclosure of the pro forma effect on net income and earnings per share of its fair value based accounting for those arrangements, effective for fiscal years beginning after December 15, 1995. The Company plans to continue accounting for stock option grants in accordance with APB Opinion No. 25 and, accordingly, recognizes no compensation expense for the stock option grant. The Company will make the additional disclosures required by Statement 123 beginning in 1996. CONSOLIDATED BALANCE SHEETS CytRx Corporation and Subsidiaries
December 31, ------------------------ 1995 1994 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $16,645,570 $ 3,395,974 Short-term investments (Note 2) 8,556,235 27,453,502 Receivables 91,077 68,590 Inventories (Note 3) 6,318 6,651 Other current assets 267,420 447,165 ---------- ---------- Total current assets 25,566,620 31,371,882 Property and equipment, net (Note 4) 5,137,764 5,649,056 Other assets: Patents and patent application costs, less accumulated amortization of $113,100 at December 31, 1994 - 1,395,476 Other 255,599 244,153 ---------- ---------- Total other assets 255,599 1,639,629 ---------- ---------- Total assets $30,959,983 $38,660,567 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 266,125 $ 284,179 Accrued liabilities 923,373 350,041 ---------- --------- Total current liabilities 1,189,498 634,220 Commitments (Notes 5 and 9) Stockholders' equity (Notes 2 and 6): Common stock, $.001 par value, 18,750,000 shares authorized; 7,915,308 and 7,893,962 shares issued at December 31, 1995 and 1994, respectively 7,915 7,894 Additional paid-in capital 62,514,691 62,350,926 Treasury stock, at cost (58,750 shares at December 31, 1995) (242,343) - Net unrealized loss on investments - (2,475,277) Accumulated deficit (32,509,778) (21,857,196) ---------- ---------- Total stockholders' equity 29,770,485 38,026,347 ---------- ---------- Total liabilities and stockholders' equity $30,959,983 $38,660,567 ========== ========== See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS CytRx Corporation and Subsidiaries
Year Ended December 31, ------------------------------------------- 1995 1994 1993 ----------- ---------- ---------- Revenues: Net sales $ 512,528 $ 500,814 $ 506,317 License fees (Note 8) 115,000 - 1,500,000 Investment income, net (Note 2) 1,803,988 1,890,425 2,514,244 Other 111,814 96,779 23,977 --------- --------- --------- 2,543,330 2,488,018 4,544,538 Expenses: Cost of sales 49,789 57,572 53,741 Research and development 7,070,600 6,769,171 4,719,912 Selling and marketing 228,794 181,542 444,512 General, administrative and business development 3,345,857 3,281,324 2,554,973 Write-off of patent costs (Note 1) 1,395,476 - - Realized loss on short-term investments (Note 2) 1,102,622 - - Interest 2,774 29,924 - ---------- ---------- --------- 13,195,912 10,319,533 7,773,138 ---------- ---------- --------- Loss before cumulative effect of change in accounting principle (10,652,582) (7,831,515) (3,228,600) Cumulative effect of change in accounting principle (Note 2) - 131,329 - ---------- --------- --------- Net loss $(10,652,582) $(7,700,186) $(3,228,600) ========== ========= ========= Per share amounts: Loss before cumulative effect of change in accounting principle $(1.35) $(.99) $(.41) Cumulative effect of change in accounting principle (Note 2) - .01 - ---------- --------- --------- Net loss per common share $(1.35) $(.98) $(.41) ========== ========= ========= See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CytRx Corporation and Subsidiaries
Common Stock ------------------- Additional Net Unrealized Shares Paid-in Accumulated Loss on Treasury Outstanding Amount Capital Deficit Investments Stock Total ---------- ------ ----------- ------------- ------------ --------- ----------- Balance at December 31, 1992 7,869,987 $7,870 $62,168,541 $(10,928,410) $ - $ - $51,248,001 Issuance of common stock: Exercise of stock options 12,791 13 61,861 61,874 Other 2,873 3 53,293 53,296 Preferred stock redemption (793,851) (793,851) Stock option extensions 344,549 344,549 Net loss (3,228,600) (3,228,600) --------- ----- ---------- ---------- ---------- ------- ---------- Balance at December 31, 1993 7,885,651 7,886 61,834,393 (14,157,010) - - 47,685,269 Cumulative effect of change in accounting principle 131,329 131,329 Issuance of common stock: Exercise of stock options 3,333 3 37,075 37,078 Other 4,978 5 100,183 100,188 Net unrealized loss on investments (2,606,606) (2,606,606) Stock option extensions 379,275 379,275 Net loss (7,700,186) (7,700,186) --------- ----- ---------- ---------- --------- ------- ---------- Balance at December 31, 1994 7,893,962 7,894 62,350,926 (21,857,196) (2,475,277) - 38,026,347 Issuance of common stock: Exercise of stock options 3,926 4 27,476 27,480 Other 17,420 17 136,289 136,306 Reduction of unrealized loss on investments 2,475,277 2,475,277 Purchase of treasury stock (242,343) (242,343) Net loss (10,652,582) (10,652,582) --------- ----- ---------- ---------- --------- ------- ---------- Balance at December 31, 1995 7,915,308 $7,915 $62,514,691 $(32,509,778) $ - $(242,343 $29,770,485 ========= ===== ========== ========== ========= ======= ========== See accompanying notes. * Adjusted for 1-for-4 reverse stock split in February 1996 (see Note 1).
CONSOLIDATED STATEMENTS OF CASH FLOWS CytRx Corporation
Year Ended December 31, --------------------------------------- 1995 1994 1993 ----------- ---------- ---------- Cash flows from operating activities: Net loss $(10,652,582) $(7,700,186) $(3,228,600) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 568,542 388,330 211,519 Change in market value of investments - - 4,314 Compensation expense on option extensions - 379,275 344,549 Cumulative effect of change in accounting principle - (131,329) - Write-off of patent costs 1,395,476 - - Write-off of fixed assets 136,647 - - Change in assets and liabilities: Receivables (22,487) 164,093 (152,816) Inventories 333 4,242 (2,088) Other assets 168,299 (182,041) (497,953) Accounts payable (18,054) (561,407) 691,141 Other liabilities 573,332 (879,365) (170,352) --------- --------- --------- Total adjustments 2,802,088 (818,202) 428,314 --------- --------- --------- Net cash used by operating activities (7,850,494) (8,518,388) (2,800,286) Cash flows from investing activities: Sale of short-term investments, net - - 8,829,556 Purchases of available-for-sale securities - (34,126,236) - Purchases of held-to-maturity securities (9,632,312) - - Sales of available-for-sale securities 26,437,732 37,279,206 - Maturities of available-for-sale securities - 4,620,000 - Maturities of held-to-maturity securities 4,625,000 - - Capital expenditures, net (251,773) (2,851,347) (3,140,887) ---------- --------- --------- Net cash provided by investing activities 21,178,647 4,921,623 5,688,669 Cash flows from financing activities: Net proceeds from issuance of common stock 163,786 137,266 115,168 Purchase of treasury stock (242,343) - - Preferred stock redemption - - (793,856) ---------- --------- --------- Net cash provided (used) by financing activities (78,557) 137,266 (678,688) ---------- --------- --------- Net increase (decrease) in cash and cash equivalents 13,249,596 (3,459,499) 2,209,695 Cash and cash equivalents at beginning of year 3,395,974 6,855,473 4,645,778 ---------- --------- --------- Cash and cash equivalents at end of year $ 16,645,570 $ 3,395,974 $ 6,855,473 ========== ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 2,774 $ 29,924 $ - ========== ========= ========= See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CytRx Corporation and Subsidiaries _____________________________________________________________________ 1. Summary of Significant Accounting Policies Description of Business - CytRx Corporation and its subsidiaries are engaged in the development of pharmaceutical products. Reference herein to "the Company" includes CytRx and its wholly-owned subsidiaries -- Vaxcel, Inc., Vetlife, Inc. and Proceutics, Inc. Vaxcel is developing the Optivax vaccine delivery system. Vetlife is developing products to enhance food animal growth. Proceutics provides high quality preclinical development services to the pharmaceutical industry. Basis of Presentation - The consolidated financial statements include the accounts of CytRx Corporation together with those of its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the 1995 financial statement presentation. Reverse Stock Split - All share and per share information in the accompanying consolidated financial statements and notes thereto has been retroactively adjusted to reflect a one-for-four reverse stock split approved on February 5, 1996 by the Company's stockholders, effective February 6, 1996. Cash Equivalents - The Company considers all highly liquid debt instruments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents consist primarily of auction-market preferred stock, commercial paper, and amounts invested in money market accounts. Short-term Investments - Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in a separate component of shareholders' equity. Realized gains and losses are included in investment income and are determined on a first-in, first-out basis (see Note 2). Inventories - Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. Property and Equipment - Property and equipment are stated at cost and depreciated using the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized over the remaining term of the related lease using the straight-line method. Patents and Patent Application Costs - Prior to 1995, the Company capitalized the costs associated with obtaining patents on its technologies. During the first quarter of 1995 the Company changed from deferring and amortizing such costs to recording them as expenses when incurred because, even though the Company believes the patents and underlying technology have continuing value, the amount of future benefits to be derived therefrom is uncertain. Accordingly, the new accounting method has been adopted in recognition of a possible change in estimated future benefits. Since the effect of this change in accounting principle is inseparable from the effect of the change in accounting estimate, such change has been accounted for as a change in estimate in accordance with Opinion No. 20 of the Accounting Principles Board. As a result, the Company recorded a non-cash write-off of $1.4 million during 1995 ($.18 per share). Future patent costs are expected to be expensed since the benefits to be derived therefrom are likely to be uncertain. Loss Per Common Share - Loss per common share is based on the weighted average number of common shares and common share equivalents outstanding during each period. Stock options and warrants outstanding are excluded from the computation of net loss per share since the effect is antidilutive. Revenue Recognition - Sales are recognized at the time the products are shipped. License fees are recognized as income when they become receivable under the terms of the related contracts (see Note 8), either by the passage of time or upon the occurrence of certain events. Stock Based Compensation - The Company grants stock options for a fixed number of shares to key employees, directors and consultants with an exercise price equal to the fair market value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no compensation expense for the stock option grants (see Note 6). Use of Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. New Accounting Standard - Statement of Financial Accounting Standards No. 121 ("SFAS 121") establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill. This statement was issued in 1995 and is required to be adopted January 1, 1996. The Company will adopt SFAS 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. 2. Short-term Investments Effective January 1, 1994, CytRx adopted Statement of Financial Accounting Standards No 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). In accordance with SFAS 115, the Company did not restate prior period financial statements. The cumulative effect of adopting SFAS 115 decreased net loss by $131,329 in 1994. At December 31, 1995 and 1994, the Company has classified all of its short-term investments as held-to-maturity and available-for-sale, respectively. Proceeds from sales of available-for-sale securities during 1995 and 1994 were $25.3 million and $37.2 million, respectively. Net realized losses on sales of available-for-sale securities during 1995 and 1994 were $1.1 million and $80,000, respectively. A summary of held-to-maturity and available-for-sale securities at December 31, 1995 and 1994 is presented below. The cost of held-to-maturity securities at December 31, 1995 includes $15.8 million of securities classified as cash equivalents in the accompanying consolidated balance sheet. December 31, 1995 Held-to-Maturity Securities -------------------------------------- Gross Gross Fair Unrealized Unrealized Market (in thousands) Cost Gains Losses Value ------ ------ ----- ------ U.S. government debt securities $ 1,579 $ 16 $ - $ 1,595 Corporate debt securities 22,809 11 4 22,816 ------ ------ ----- ------ Total $24,388 $ 27 $ 4 $24,411 December 31, 1994 Available-for-Sale Securities -------------------------------------- Gross Gross Fair Unrealized Unrealized Market (in thousands) Cost Gains Losses Value ------ ------ ----- ------ U.S. government debt securities $21,122 $ - $1,518 $19,604 Mortgage-backed securities 6,656 - 701 5,955 Corporate debt securities 2,151 - 256 1,895 ------ ------ ----- ------ Total $29,929 $ - $2,475 $27,454 The cost and estimated fair market values of held-to-maturity securities at December 31, 1995, by contractual maturities, are shown below. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations with or without prepayment penalties. Fair (in thousands) Cost Market Value ------ ------ Due in one year or less $19,949 $19,959 Due in one to five years 4,439 4,452 ------ ------ Total $24,388 $24,411 Concentrations of Credit Risk - Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments. The Company maintains cash equivalents and short-term investments in several large well-capitalized financial institutions, and the Company's investment policy disallows investment in any debt securities rated less than "investment-grade" by national ratings services. 3. Inventories Inventories at December 31 consist of the following: 1995 1994 ----- ----- Finished goods $ 4,068 $ 2,392 Raw materials 2,250 4,259 ----- ----- Total $ 6,318 $ 6,651 4. Property and Equipment Property and equipment at December 31 consist of the following: 1995 1994 --------- --------- Land $ 220,000 $ 220,000 Buildings and improvements 4,070,497 3,999,216 Equipment and furnishings 2,241,426 2,277,864 Leasehold improvements - 95,263 --------- --------- 6,531,923 6,592,343 Less accumulated depreciation and amortization (1,394,159) (943,287) --------- --------- $5,137,764 $5,649,056 5. Lease Commitments Rental expense under operating leases during 1995, 1994 and 1993 approximated $69,000, $73,000 and $96,000, respectively. Minimum future obligations for operating leases are shown below. Minimum future subrentals the Company expects to receive under noncancellable subleases total approximately $144,000 at December 31, 1995. 1996 $ 68,000 1997 70,000 1998 56,000 1999 4,000 ------- $198,000 6. Stock Options and Warrants The Company has stock option plans under which an aggregate of 1,175,000 shares of the Company's common stock are reserved for grant. Pursuant to the plans, certain key employees, directors and consultants are eligible to receive incentive and/or nonqualified stock options. The options granted under the plans generally become exercisable over a three year period from the dates of grant and have lives of ten years. Exercise prices are set at the fair market values of the common stock on the dates of grant. Stock option activity during 1993, 1994, and 1995 was as follows: Shares Under Option Price ------- ------------- Balance, December 31, 1992 231,486 $2.64 - $31.00 Granted 163,531 15.00 - 22.00 Exercised (12,791) 2.64 - 8.24 Cancelled (516) 17.52 - 23.00 ------- Balance, December 31, 1993 381,710 2.76 - 31.00 Granted 80,975 7.00 - 25.52 Exercised (3,333) 4.00 - 17.52 Cancelled (74,621) 16.00 - 23.00 ------- Balance, December 31, 1994 384,731 2.76 - 31.00 Granted 126,611 2.76 - 9.12 Exercised (3,926) 7.00 Cancelled (171,554) 2.76 - 31.00 ------- Balance, December 31, 1995 335,862 2.76 - 25.52 At December 31, 1995, options as to 235,565 shares were exercisable and options as to 515,886 shares were available for future grants. In addition to the above stock options, the Company has granted warrants to purchase an aggregate of 682,427 shares of the Company's common stock (at exercise prices ranging from $4.50 to $7.00 per share) to its President and Chief Executive Officer subject to vesting criteria as set forth in his employment agreement. As of December 31, 1995, 607,427 of such warrants were vested. Effective January 1995 the employment agreement was amended, resulting in the repricing of certain warrants and the net cancellation of 17,573 warrants. In September 1993 and December 1994 the exercise periods of certain stock option and warrant contracts issued prior to 1990 were extended. The Company recognized compensation expense of approximately $345,000 and $379,000 in 1993 and 1994, respectively, related to these extensions. In January 1995 the Company repriced certain employee stock options and warrants, resulting in the net cancellation of 73,487 options and warrants. 7. Income Taxes The Company and its subsidiaries file separate income tax returns. For income tax purposes, the Company and its subsidiaries have an aggregate of approximately $31.2 million of net operating losses available to offset against future taxable income, subject to certain limitations. Such losses expire in 2000 through 2010. They also have an aggregate of approximately $1.2 million of research and development credits available for offset against future income taxes which expire in 2000 through 2010. Deferred income tax assets of approximately $13.6 million and $9.2 million exist at December 31, 1995 and 1994, respectively, principally with respect to the net operating losses. Based on assessments of all available evidence as of December 31, 1995 and 1994, management has concluded that the respective deferred income tax assets should be reduced by valuation allowances equal to the amounts of the deferred income tax assets. 8. License Agreements In October 1995 Glaxo Wellcome PLC ("GW") informed the Company of its decision to cease development of the Company's RheothRx copolymer and its intention to terminate its license. Pursuant to CytRx's 1990 license agreement with GW (then Burroughs Wellcome Co.), the Company received a cumulative total of $9 million during 1990 to 1993. Subsequent to the termination of its license, GW has no further financial obligations to CytRx. 9. Marketing and Distribution Agreement In January 1996 Vetlife signed an agreement with Ivy Laboratories, Inc. to market and distribute Ivy's line of FDA approved cattle growth products and devices in North America. The newly created Vetlife Cattle Marketing Group will begin marketing products by January 1997. In connection with the agreement, Vetlife arranged for letter of credit in the amount of $5 million in favor of Ivy Laboratories. The letter of credit is collateralized by approximately $6 million of short-term investments. REPORT OF INDEPENDENT AUDITORS ERNST & YOUNG LLP The Board of Directors and Stockholders CytRx Corporation We have audited the accompanying consolidated balance sheets of CytRx Corporation as of December 31, 1995 and 1994 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CytRx Corporation at December 31, 1995 and 1994 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, in 1994, the Company changed its method of accounting for certain investments in debt and equity securities to comply with Statement of Financial Accounting Standards No. 115. /s/ Ernst & Young LLP Atlanta, Georgia February 19, 1996
EX-21 5 Exhibit 21.1 CYTRX CORPORATION Subsidiaries of the Registrant Percentage Name of Subsidiary State of Incorporation of Ownership - ---------------------- ---------------------- ------------ Custom Adjuvants, Inc. Georgia 100% Proceutics, Inc. Delaware 100% Vetlife, Inc. Delaware 100% Vaxcel, Inc. Delaware 100% EX-23 6 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of CytRx Corporation of our report dated February 19, 1996, included in the 1995 Annual Report to Shareholders of CytRx Corporation. Our audits also included the financial statement schedule of CytRx Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements on Form S-8 Nos. 33-48706 pertaining to the 401(k) Plan Interests of CytRx Corporation Common Stock, 33-93816 pertaining to the 1994 Stock Option Plan of CytRx Corporation, and 33-93818 pertaining to the 1995 Stock Option Plan of CytRx Corporation, and on Form S-3 No. 33-93820 and the related prospectus of CytRx Corporation for the registration of 57,427 shares of its Common Stock, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of CytRx Corporation. /s/ Ernst & Young LLP Atlanta, Georgia March 22, 1996 EX-27 7
5 This schedule contains summary financial information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1995 DEC-31-1995 16645570 8556235 91077 0 6318 25566620 6531923 1394159 30959983 1189498 0 0 0 7915 29762570 30959983 512528 2543330 49789 49789 13146123 0 2774 (10652582) 0 (10652582) 0 0 0 (10652582) (1.35) (1.35)
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